Law Enforcement Perils and Pitfalls for Affiliates – By Thomas A. Cohn

In January 2012, six affiliate marketers settled actions by the Federal Trade Commission (FTC) and were ordered to stop using fake news sites to market dietary supplements and other products. In 2011, the FTC obtained preliminary orders shutting down their webpages and restricting their assets.

The FTC alleged these websites mimicked actual news reports, but were in fact commercial advertisements intended to drive consumers to purchase acai berry and other dietary supplements and products.

The websites often claimed that the story by the “reporter” had run in major media outlets like ABC, Fox News, CBS, CNN, and USA Today. The settlements order the affiliates to: clarify that their webpages are advertisements and not objective journalism; disclose any material connections they have with advertisers; and together pay the FTC about $500,000.

The settlements also ban them from making deceptive or unsubstantiated claims about health-related or any other products.

But the FTC hasn’t limited these efforts to just affiliate marketers. FTC actions against online advertisers have cited their use of deceptive affiliate marketing. And the orders against them have imposed severe monitoring requirements which make it difficult to nearly impossible to work with affiliate marketers.

Two such actions illustrate this aggressive FTC approach: In January 2012, the FTC settled charges against Central Coast Nutraceuticals (CCN) and its principals for deceptively marketing dietary supplements through trial offers that led to unauthorized billing. Defendants were ordered to pay $1.5 million and banned from negative option marketing, deceptive and unsubstantiated product claims, and unauthorized billing.

Significantly, defendants were required to distribute the order to affiliates and networks helping to sell their products, and obtain from them a signed statement acknowledging receipt and expressly agreeing to comply with the terms of the order. Defendants also must review those affiliates’ marketing materials before they are used, to ensure they comply with the order, and must terminate business with any offenders.

The FTC again imposed harsh monitoring requirements in a February 2012 settlement with Jesse Willms and other defendants. They were ordered to turn over assets and agree to monthly monitoring and policing of affiliate marketers and networks they do business with. They likewise must serve the order on affiliates and networks and obtain a signed statement acknowledging receipt of, and agreeing to comply with, the order.

What do these increasingly aggressive FTC actions mean for affiliates? Regulatory scrutiny is higher than ever, and they must clean up or risk enforcement. Such attacks might come from FTC and/or state Attorneys General, who are also more active than ever in policing online marketing. This means:

Affiliates must disclose all “material connections” with advertisers, such as money paid

Affiliates held to same standards as advertisers: claims must be truthful and substantiated.

Any fake or deceptive formats will greatly increase risk of enforcement.